Explain what factors cause shifts and changes in the slope of the 𝒁𝒁 (demand) curve presented in Lecture 3. Use a graph to explain these factors that cause shifts and changes in the slope of the demand curve.

Q1 [20 points]: Explain what factors cause shifts and changes in the slope of the
𝒁𝒁 (demand) curve presented in Lecture 3. Use a graph to explain these factors
that cause shifts and changes in the slope of the demand curve.

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Q2 [10 points]: Why would consumer decrease consumption even if their
disposable income has not changed? In answering this question consider what
happened at the start of the most recent financial crisis in 2008.
Q3 [10 points]: In the model discussed in Lecture 3, why do we assume G and T
are exogenous?
Q4 [60 points]: Suppose the United States economy is represented by the
following equations:
Z = C + I + G
C = 1500 + .5YD
I = 3000
G = 2000
T = 500
YD = Y – T
a. Given the above variables, calculate the equilibrium level of output.
b. Show the equilibrium level of output for this economy on a diagram
with demand and output curves.
c. Now, assume that government spending decreases from 2000 to
1500. What is the new equilibrium level of output? How much does
income change as a result of this event? What is the multiplier for this
economy? Show the new equilibrium level of output for this economy
on a diagram with demand and output curves.
d. Suppose the marginal propensity to consume increases from 𝟎. 𝟓 to
𝟎. 𝟖. Given this information, show which of the following events will
cause the largest increase in output?

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i) G increases by 200
ii) T decreases by 250
iii) I increases by 150